Daily Voice: Aditya Birla Sun Life AMC's Harish Krishnan identifies these three sectors as dark horses

Harish Krishnan is the Co-CIO and Head Equity at Aditya Birla Sun Life AMC

Harish Krishnan of Aditya Birla Sun Life AMC has identified metals, consumer durables and cement sectors as dark horses as they provide greater margin of safety, given their longer term underperformance as well as low relative ownership of these sectors.

Further, according to him, business momentum in sectors like IT, pharma, capital goods, auto and real estate will persist. "Large drawdown in these sectors provide us opportunities to further add," the Co-CIO and Head Equity at Aditya Birla Sun Life AMC said.

Harish with nearly 20 years of experience in the asset management industry (including 10 years in Kotak Mutual Fund) believes topline of India Inc slowing down and associated sluggishness in near-term earnings, and in contrast elevated valuation and elevated expectations are bigger risks for India in near-term.

What is your take on the latest RBI commentary following the policy meeting? Do you believe the central bank will opt for a rate cut in December?

The change in stance by RBI to "neutral" is encouraging as central bank can pivot to supporting growth, should the need arise. We believe that RBI will be data dependent, with an eye on central bank actions in developed world as well as trajectory of inflation in India. We do think change in stance opens up the possibility of rate cut in December.

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Harish Krishnan

Co-CIO and Head Equity|Aditya Birla Sun Life AMC

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Are the recent stimulus measures in China sufficient to boost the economy and attract consistent FII inflows into Chinese equity markets?

We believe Chinese economy requires significant government reset to boost consumption, as well as supporting the real estate industry and recapitalising the funding vehicles that have funded massive capacity creation. The stimulus measures need to be followed by more measures to boost consumption as well as taking out excess capacities. We believe one key difference in the measures announced recently is the government focus on equity markets, which have been missing in the past.

Over the course of last 18-24 months, many global investors have been in the "Anything But China" camp (ABC), I think these measures will test many such investors, and few may want to re-consider their allocation. However, in the long run, investors will get back to greater policy visibility, backing competent management teams as well as longer term opportunity - something India has in abundance of.

Are China's stimulus measures and rising oil prices the only key risks for Indian equities? Do you think further market correction is necessary to address valuation concerns?

We believe, topline of India Inc slowing down and associated sluggishness in near-term earnings, and in contrast elevated valuation and elevated expectations are bigger risks for India in near-term. Over the last 18-24 months, risk taking has been disproportionately rewarded, with slowing topline and sluggish near term earnings, we believe fewer stocks to meaningfully outperform going ahead.

Which sectors have you have started investing in after the recent market correction?

Sectors like metals, consumer durables and cement are sectors that we consider "dark horse" sectors that provide greater margin of safety, given their longer term underperformance as well as low relative ownership of these sectors. Sectors like IT, pharma, capital goods, auto and real estate are areas where we think sectoral business momentum to persist and large drawdown in these sectors provide us opportunities to further add.

Do you believe growth is slowing down in certain segments?

Urban consumption is slowing down, as seen in mid-single digit growth seen in recent GST collections. Partially this could be a manifestation of elevated spending by Top 10 percent of population in revenge spending post Covid on the base, and some normalisation of the same, along with some slowdown in credit growth. However, we think these are transient slowdown and believe medium term consumption trends to be strong in a growing economy like India.

Is this the right time to take a significant exposure to the metals sector?

While near term catalysts are more driven by how China responds, we think Indian metal companies have a healthier balance sheet than what they had in last 15 years. Big push in infrastructure should help in volume growth, profit share of sector has declined meaningfully from the highs seen in 2021, when commodity prices spiked up. Coupled with low ownership of the sector, we think metals provides a "dark horse" opportunity, where near term performance is hard to gauge (given dependence to Chinese policy responses), however medium term provides an asymmetric payoff with good margin of safety and meaningful potential to outperform.

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